Can you explain how the field for entering url of update xml file is to be used? I tested this out but don't see any xml file being created so not sure how this works. Could you provide an example setup using this?

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Hi apmsooner, this field is intended for use with a Feature Server, which is a sister project to features developed out of Github.

If that field specifies the update xml feed of a feature server, that server will be checked for information about module updates for the feature instead of trying (and failing) to find module updates by asking Drupal.org.

To see a feature server in action, you can check out code.developmentseed.org or community.featureservers.org